If you’re already thinking about starting a small business, there’s a good chance you know what market you want to enter—like fitness, personal care, digital marketing, or food and beverage, for example. Next, you’ll need to decide if you’re selling products or services within that market that answer the question, “What problem am I solving or solution am I offering?” Customers are ultimately looking to purchase a specific outcome or transformation, but you must decide if you’re delivering it through a product-based business or a service-based business.
This decision will affect the kind of personnel, premises, marketing techniques, bookkeeping, and up-front capital you’ll need. It’s important to take your time in making the right choice for you—your talents might work much better for one business model or the other!
Selling products
Selling products can make it easier in many ways for you to match the needs of customers with solutions. Offering products means selling identical or similar solutions with small variations to numerous customers. You don’t have to worry about completely individualizing each solution to their problem—most or all aspects will stay the same. Prospective customers can easily evaluate and compare features across products by viewing and interacting with them before purchase. Or they can watch a demonstration or test it out themselves.
All of this helps customers easily determine the value of a product. You may have to spend less time convincing them it’s the answer to their problem. And they may be more willing to pay for your product solution, even if they’re a little unsure of it, because it’s returnable (and so, less of a risk for them). It’s also easier for customers to rate and review products online (which is free word-of-mouth advertising for you, if it’s positive).
Where having a product-based business becomes more work for you is when you have to figure out where to store inventory, how to manufacture the product or purchase it for resale, its pipeline from manufacturing to you, and how to get capital upfront to buy enough to start your business. Spending money before you have any income (aka a business loan) is a risk some people don’t want to make. You’ll also need to consider personnel costs (sales, customer service, warehousing/inventory, etc.), losses due to damage and theft, shipping costs and return policies, and changing sales projections.
Selling services
Selling services means you can, and will have to, customize many or all features of your solution to meet the needs of each customer. This can result in very happy customers, but it means more work on your end to understand the exact wants and challenges of each customer (even if they can’t articulate it) and then convince them that your service has value. You may need to build up a trusting relationship first by networking before you land a paying client. Offering a trial period of your services can be one way to demonstrate your value, but it comes at the risk of spending time and resources on a prospective customer who may ultimately decide not to pay you for the full service.
On the other hand, a service-based business is almost always less expensive to operate, because there’s no inventory to pre-buy or warehouse, no physical location to build out (necessarily), and no theft or shipping damages to worry about. You can also more easily offer discounts and other pricing incentives without losing money you may have already invested in a product.
For services, testimonials, social proof, and word of mouth are even more crucial in bringing you more business. And a bad review for a service can be more harmful than one made for a physical product—mostly because products can be exchanged or returned (so the complaint is that the product wasn’t a good fit, not necessarily that it was a bad experience). With that said, you can often more easily incorporate feedback from customers—good and bad—to change your services to meet changing market demands.
Hybrid Options
It is worth noting that in today's interconnected world, product-service hybrids are becoming increasingly popular. Many successful businesses now offer a combination of products and related services to provide a comprehensive solution to their customers. This approach allows for diversification and can cater to a wider range of customer needs.
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